CHANGES TO THE RULES GOVERNING FOREIGN INVESTMENT IN RUSSIAN STRATEGIC COMPANIES

Federal Law No. 322-FZ, dated 16 November 2011, “On Amendments to Article 6 of the Federal Law “On Foreign Investment in the Russian Federation” and the Federal Law “On Foreign Investment in Companies of Strategic Importance for National Defence and Security” comes into force on 18 December 2011 (30 days after its official publication).

The main purposes of the new amendments is to improve the environment for foreign investments in Russian strategic companies.

1. Transactions involving international financial institutions set up in accordance with international treaties of the Russian Federation or with which the Russian Federation has concluded international treaties with respect to Russian strategic companies will not be subject to prior approval under the Federal Law.
2. The Federal Law will not apply to transactions in relation to Russian strategic companies concluded by organisations under the control of the Russian Federation or citizens of the Russian Federation that are, under the Russian legislation, tax residents of the Russian Federation (apart from Russian citizens with dual citizenship).
3. In relation to a Russian strategic company using subsoil sectors of federal significance, control by a non-government foreign investor or group of persons and prior approval of their transactions will begin not from 10 but 25 per cent of the total votes on the shares (ownership interests) in the authorised capital or the composition of the collegial management body or collegial executive body of such a company.
4. The four types of activity of strategic importance for national defence and security are specified in detail and now exclude:
- operation of radiation sources by companies in the civil sector of the economy for which this does not constitute their core business;
- licensable distribution and technical maintenance of encryption (cryptographic) means, provision of services in the sphere of information encryption by banks with no state participation.
5. When establishment of control or a transaction entails an audit of a Russian strategic company, the audit will be performed by the federal executive authority in the defence sphere (Ministry of Defence of the Russian Federation) and, as before, the federal executive security agency (Federal Security Service of the Russian Federation).
6. Changes have been introduced into certain procedures and the timeframe for implementation of a decision taken by the Government Commission for control over foreign investment in the Russian Federation regarding approval of the transaction or control subject to an agreement being concluded with the applicant securing its fulfillment of certain obligations.